Deterring the Green Revolution: Greenwash and the Threat of Green Entry^*

This paper considers a vertically differentiated products market, in which consumers internalize the environmental harm caused by the products they consume. A brown incumbent falsely represents its product as more green than it actually is. Consumers’ beliefs regarding the harm caused by consuming the incumbent’s variant determine whether a greener entrant can profitably enter the market. Greenwash by the incumbent firm can profitably increase its own market share, but it may also have important implications for market structure. I show that (1) consumers benefit from some amount of greenwash advertising, (2) greenwash advertising can reduce aggregate environmental harm when it is used to deter entry, and (3) some (small) amount of greenwash advertising may enhance total welfare. These results should inform market regulators and environmental groups that wish to combat (or facilitate) false advertising by polluting firms.